Terra (LUNA) is the Terra protocol’s native staking token. Luna is used for governance and mining. Users stake LUNA to validators who record and verify transactions on the blockchain in exchange for rewards from transaction fees. ^[2]

LUNA token was relaunched in May 2022, after the collapse of the previous version, LUNA Classic (LUNC). ^[7][8]

Luna (LUNC) Crypto Crash

Initially, TerraUSD (UST) and LUNA were created as sister coins running on the Terra blockchain. The UST coin was an algorithmic stablecoin with its value backed by LUNA. ^[3]

On May 7th, 2022, the price of TerraUSD (UST), the algorithmic stablecoin of the Terra network, dropped to $0.91 after $2 billion of UST was unstaked and liquidated, causing a decrease in its value from $1. This resulted in traders exchanging 90 cents worth of UST for $1 of Luna. The reason for the sudden unstaking of the $2 billion worth of UST is unknown. After a large amount of UST was dumped, the stablecoin started to depeg. ^[10]

Investors also sold their UST once the stablecoin couldn't retain its peg. The price bounced between 30 cents and 50 cents in the week following the initial depeg, which then eventually fell to a steady low of under 20 cents. Its market cap, which was around $18 billion in early May, fell to $770 million by the end of May. ^[11]

This event led to an increase in the circulating supply of Luna from 345 million Luna to 3.47 billion Luna on May 12, 2022, which caused its eventual delisting from crypto exchanges, making it worthless.^[3]

Luna Crypto Crash: The Aftermath

Following the crash, several crypto exchanges such as Binance delisted Luna and UST pairings. Trading suspensions were also prevalent in the lead-up to the weekend. A Luna Coinbase listing, previously set for launch by the end of June, was also quietly pulled. ^[10]

Do Kwon, CEO of Terra Luna, published a recovery plan for Luna, which had a temporary effect on the overall sentiment. Luna briefly rose to $4.46, before dropping below the $1 mark once again. It has since plummeted below 1 cent. Luna was abandoned after the drop, with Terra launching a new chain and new coin - Luna 2.0^[8]. The old Luna was rebranded as Terra Classic known as LUNC.^[9]

Luna 2.0

On 28 May 2022, following the Luna crypto crash, Terra 2.0, a new form of the blockchain and the LUNA cryptocurrency, was launched. The new form of LUNA, which sees its original version rebranded as terra classic (LUNC), was airdropped to holders. ^[4]

Airdrop Distribution

The Luna 2.0 airdrop's primary purpose was to compensate people who held the original version of the coin before it crashed on May 7, 2022. The eligibility of LUNA rewards was based on the types of tokens held on the Terra Classic chain, the length of time the tokens were held (based on Pre-Attack and Post-Attack snapshots), and the number of tokens held. ^[4]

The first airdrop, Genesis, took place on May 27th, 2022. LUNA has a total supply of 1 billion tokens allocated according to the following distribution:

Community pool allocation: 30% (300 million)

• Controlled by staked governance.
• 10% earmarked for developers.

Pre-attack LUNA holders airdrop: 35% (350 million)

• Including bonded, unbonding, and staking derivatives.
• For wallets with less than 10k Luna: 30% unlocked at genesis; 70% vested over 2 years with 6-month cliff.
• For wallets with less than 1 million Luna: 1-year cliff, 2-year vesting thereafter.
• For wallets with more than 1 million Luna: 1-year cliff, 4-year vesting thereafter.

Pre-attack UST holders airdrop: 10% (100 million)

• 500K whale cap - covers up to 99.7% of all holders, but only 26.72% of aUST.
• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff.

Post-attack LUNA holders airdrop: 10% (100 million)

• Including bonded, unbonding, and staking derivatives.
• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff.

Post-attack UST holders airdrop: 15% (150 million)

• 30% unlocked at genesis; 70% vested over 2 years thereafter with a 6-month cliff. ^[2][6]

Tokenomics

When the supply of LUNA exceeds 1 billion, the protocol initiates a mechanism to burn LUNA tokens until the supply returns to the equilibrium level. Additionally, the protocol mints new LUNA tokens according to its algorithm to maintain the stability of Terra stablecoins' price. ^[12]

LUNA was first made available for purchase in a private token sale in August 2018 for initial investors, which included major exchanges such as Binance, and OKX, and raised Terra $32 million. ^[12]

Of the 385 million LUNA minted for the sale, 10% was reserved for Terraform Labs, 20% for employees and project contributors, 20% for the Terra Alliance, 20% for price stability reserves, 26% for project backers, and 4% for genesis liquidity. ^[12]

LUNA Utility

• LUNA is used to mine Terra transactions through staking.
• It is used to ensure the price stability of Terra stablecoins.
• It is used to provide incentives for the platform’s blockchain validators.
• LUNA is used to provide collateral for the purpose of stabilizing the price of Terra-based stablecoin. ^[2]

Staking

Staking is the process of bonding LUNA to a validator in exchange for staking rewards.
The Terra protocol only allows the top 130 validators to participate in consensus. A validator's rank is determined by their stake or the total amount of Luna bonded to them. Although validators can bond Luna to themselves, they mainly amass larger stakes from delegators. Validators with larger stakes get chosen more often to propose new blocks and earn proportionally more rewards. ^[2]

Phases of Luna

LUNA exists in the following three phases:

• Unbonded: Luna that can be freely traded and is not staked to a validator.
• Bonded: Luna that is staked to a validator. Bonded Luna accrues staking rewards. Luna bonded to validators in Station can’t be traded freely.
• Unbonding: Luna that is in the process of becoming unbonded from a validator and does not accrue rewards. This process takes 21 days to complete. ^[2]